What is the Difference Between Mutual Funds and Nidhi Company

Nidhi Company and mutual fund are two distinct form of business as they differ in terms of their objectives, and the nature of the business.

Very often people make a mistake of considering Nidhi Company and the mutual fund's company as one and the same form of companies. However, there is a very significant difference between the Mutual Funds and Nidhi Company. These two companies differ in the term of their objectives, nature of business, dealings etc.

Nidhi Companies are recognized under section 406 of the Companies act 2013 as the company belonging to the non- banking Indian Finance sector. The main objective of the Nidhi Company includes inculcating the habit of thrift and saving among its members only. The core business activity of this form of the company includes lending and borrowing among its members only. The basic principle of Nidhi Company is the principle of mutuality. Nidhi Company is also known as the permanent fund, Benefit Fund, Mutual Benefit Fund or mutual benefit company. Further, the Nidhi Companies are regulated by the ministry for corporate affairs.

Mutual funds are the kind of an investment vehicle that is created by the pool of money collected from many investors for investing in multiple securities. Mutual Funds are managed and operated by the professional money managers who allocate into the securities and try to make capital gains and incomes out of it. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. The mutual fund attempts to provide small or individual investors access to the professionally managed portfolios of equities, bonds and other securities. Through the mutual fund, money is invested in hundreds of securities thus the investor is able to attain diversification at very low prices.

Difference between Mutual Funds and Nidhi Company

1. One of the major distinctions between the mutual fund and Nidhi Company is that the Nidhi Company is empowered to deal only with its members however there is no such restriction on mutual funds.
2. The main objective of the Nidhi Company is to develop the habit of thrift and savings amongst its members. On the other hand, the main objective of the mutual fund is to increase the wealth of depositors.
3. The main nature of business of Nidhi Company is lending and borrowing of money among its members only. However, the nature of the business of mutual fund is accepting the deposits and making investments from the money received from any investors.
4. The Nidhi Company can use the amount of deposits received for lending the money to the members only. On the contrary, the mutual fund can use the amounts of deposits received for making investments or carrying out the business of chit funds, hire purchase, leasing finance, acquisition of securities etc.

Get complete information on Nidhi Company Registration Documents, Procedure and Requirements.

Also Read: Company Registration in the USA for non-resident Indians

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.